Timing of the move may reflect the fact that mainland has nine times as many accountants

Enoch Yiu

BIO

Enoch Yiu is the chief reporter of business pages at the Post. She writes feature stories with a focus on regulatory issues, stock exchanges, the Securities and Futures Commission, accountancy, insurance, pension and other financial industry development issuse. She has a weekly column, White Collar, covering the latest issues in the professional industry and also hosts podcasts and video programs on SCMP.com. She is the author of two books.

Fewer Hong Kong accounting graduates will be hired by Big Four auditors if the proposed rules take effect. Photo: Edward Wong

Thousands of junior accountants in Hong Kong have reason to worry about their job security after the Ministry of Finance proposed new rules last week that would effectively ban the city's bean counters from working on the mainland.

Posted on the ministry's Chinese-language website, the rules would, if implemented as scheduled this year, change the rules of the game for Hong Kong accountants.

The proposed rules, out for consultation until the end of the month, require an international accounting firm to team up with one of the 100 domestic accounting firms to perform audits for mainland firms planning to list offshore, including in Hong Kong, and also in order to perform annual audits after the firms are listed.

The new rules would also prohibit international accounting firms from sending their staff to the mainland under temporary licences.

The proposed changes spell the end of a golden era for Hong Kong accountants

As a result, the Big Four and other international firms are likely to scale down their hiring in Hong Kong but increase hiring for mainland operations.

The proposed changes spell the end of a golden era for Hong Kong accountants.

Over the past 20 years, many of the city's accounting graduates found it easy to get a job at international accounting firms which needed an army of junior auditors to send to mainland clients' factories or offices to help them prepare to list in Hong Kong.

Stock exchanges in Hong Kong and the United States require mainland companies planning to list to hire international accounting firms as their auditors. This is huge business for the Big Four firms, which have hired large teams from Hong Kong that they send to the mainland to do the auditing.

The new rules clearly aim to break this tradition and channel the business to the mainland's own accounting firms instead.

Why now and not before? The answer is that the mainland did not have enough accountants trained to cope with the volume of audits.

In 1993, when Beijing first allowed H-shares to list in Hong Kong, the mainland did not have many accountants who knew how to handle audits for new listings and so had to rely on Hong Kong accounting professionals.

Today, the mainland has more than 300,000 locally trained accountants, almost nine times the 35,000 or so accountants that Hong Kong can muster.

The more senior Hong Kong accountants should keep their jobs, because the offshore exchanges would still need international firms to sign off on the audits done by staff from their mainland partner firms.

But the city's junior accountants face a bleak future if they are not allowed to do field audits on the mainland. There are simply not enough auditing jobs in Hong Kong to keep them busy.

The opportunities would now be passed to junior accountants who work for mainland accounting firms that enter into partnerships with international firms.

If junior accountants want to speak up against the proposed rules, to save their jobs, they should voice their support to the Hong Kong Institute of Certified Public Accountants, which is lobbying the ministry to amend its proposals.

This is typical of mainland China strategy - using HK's professionals to 'train up' mainland staff. Mainland Chinese will offer many sweets in the initial stages when they need Hong Kong professionals' services but once they are confident that the mainland mainstream workforce is competent enough, the 'sweets' (often high paying positions and vast opportunities) will disappear quickly leaving HK professionals with dramatically different (worse off) career landscape. I fear this strategy will repeat itself across many different industry segments - accounting is just the tip of the iceberg for us (HK). Even in the private sector. We have seen it before in merchandising. Li & Fung's old Lai Chi Kok headquarter is now only a small fraction of its previous size - with the vast majority of especially junior levels jobs moved to Shenzhen. Initially, HK workers were offered attractive sweets (sorry, packages) for the HK team to commute between HK and SZ offices, raising their positions to "managers" to train up the China staff. Once that its done, few of the HK works get their contract renewed and ended up facing redundancy.

paulgillis May 19th 20145:22pm

HK auditors have benefited from a monopoly granted them by the HKSE to audit Chinese companies. This began to crumble when mainland regulators forced them to allow mainland firms to sign H-shares. This is going to force open the Red Chip and non-state sector as well. EY pretty much sealed the fate of HK auditors when it outsourced the audit of Standard Water to its mainland affiliate but signed the audit report anyway. It got caught, which got SFC on its case, but it also convinced mainland regulators to act. HK CPAs stil have a future, they just need to move to the mainland and pass the Chinese CPA examination if they want to work on Chinese companies. This is probably a good move overall, even though it will cause some short term pain in Hong Kong.

There was a point when a few of us non-HK people at one firm in SH were joking about an affirmative action program being needed for mainland-born accountants.I'd be surprised if that were the case, now. Do the cadres want the Propaganda Department and the Party positioned to influence financial reporting on mainland firms, particularly if they are state-owned enterprises?

Regarding the bankers I fully agree with you and look forward to making the same experience. Unfortunately this will not happen. Those bankers will rather make us hard working, real-economy types suffer more and more before they start begging on the streets.
For the accountants I feel pity, becuase they just do the number crunching and I need good, carefullmand ultra-accurate accountants for my business.